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Banks and big business warn Direct Action will lift costs and deter projects

 
Carbon Emissions in Australia

The government’s new emissions reduction fund is supposed to start buying greenhouse abatement from July. Photograph: Dan Peled/AAP

 

Powered by Guardian.co.ukThis article titled “Banks and big business warn Direct Action will lift costs and deter projects” was written by Lenore Taylor, political editor, for theguardian.com on Monday 24th February 2014 08.06 UTC

Banks and big business are warning the government the short-term incentives offered by its Direct Action climate policy will deter many projects and drive up the amount the government will have to pay to buy emissions reductions.

The government’s new emissions reduction fund (ERF) is supposed to start buying greenhouse abatement from July through competitive tenders that offer five-year grants to companies and organisations that reduce emissions.

Guardian Australia understands some in the government argued the fund should offer only three-year contracts, as the Coalition has announced specific funding for only the first three years.

A green paper, released late last year, said contracts would be for five years.

But in a submission to government, the Business Council of Australia (BCA) will argue even a five-year period is “of concern” because it could force bids up to cover the cost of projects likely to last more than five years, instead of spreading the costs more evenly over a longer period.

The National Environmental Law Association (Nela) has also warned the government that “a five-year contract term will prove to be a significant inhibitor in terms of ERF participation”.

“In particular, Nela is aware that none of the big four banks are likely to be willing to offer project finance for ERF projects, unless a longer contract term is available,” the association said in its submission on the fund.

The government has said the emissions reduction fund will run from 1 July 2014 to 2020, but has specified only the initial allocations for the first three years, of $300m, $500m and $750m. Even those amounts were not included in the December mid-year economic forecasts, where money for the fund was included in the “contingency reserve”.

The BCA is also likely to call on the government to clarify when the five years will take effect – the date of the execution of the contract, or when the emissions reductions actually occur. This could also push spending into later years.

Nela said if the government insisted on keeping the five-year contract limit it would need to allow businesses other ways of finding funding, for example through the Clean Energy Finance Corporation (CEFC). But the government is trying to pass legislation to abolish the corporation.

In a submission to a Senate inquiry into Direct Action, the CEFC has also argued that five-year contracts would struggle to get funding from regular banks.

 

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